Gale Encyclopedia Of American Law 3Rd Edition Volume 5 P42 pot

required of that profession may be judged
incompetent. Such a ruling by a court, a pro-
fessional disciplinary board, or an employer may
result in professional discipline, including loss of
a license to practice, demotion, or termination
of employment.
FURTHER READINGS
Grisso, Thomas. 2003. Evaluating Competencies: Forensic
Assessments and Instruments. 2d ed. New York: Plenum.
Hubbard, Karen L., Patricia A. Zapf, and Kathleen A.
Ronan. 2003. “Competency Restoration: An Examina-
tion of the Differences between Defendants Predicted
Restorable and Not Restorable to Competency.” Law
and Human Behavior 27 (April).
Moriarty, Jane Campbell, ed. 2001. The Role of Mental Illness
in Criminal Trials: Insanity & Mental Incompetence.
New York: Routledge.
Scott, Charles L. 2003. “Commentary: A Road Map for
Research in Restoration of Competency to Stand Trial.”
Journal of the American Academy of Psychiatry and the
Law 31 (March). Available online at pl.
org/cgi/reprint/31/1/36; website home page: http://
www.jaapl.org (accessed August 1, 2009).
Tewksbury, Jane E., et al. 2001. Going to Trial: Criminal
Defendants & Mental Illness: Competency and Criminal
Responsibility. Boston, MA: Massachusetts Continuing
Legal Education.
INCOMPETENT EVIDENCE
Probative matter that is not admissible in a legal
proceeding; evidence that is not admissible under
the Federal Rules of Evidence. That which the law

does not allow to be presented at all, or in
connection with a particular matter, due to lack of
originality, a defect in the witness or the document,
or due to the nature of the evidence in and of itself.
INCONSISTENT
Reciprocally contradictory or repugnant.
Things are said to be inconsistent when they
are contrary to each other to the extent that one
implies the negation of the other. For example, a
city ordinance might be inconsistent with a state
statute; or two defenses to a crime, such as the
defenses of alibi and
SELF-DEFENSE, are inconsistent.
INCONTESTABILITY CLAUSE
A provision in a life or health insurance policy
that precludes the insurer from alleging that the
policy, after it has been in effect for a stated period
(typically two or three years), is void because of
misrepresentations made by the insured in the
application for it.
An incontestability clause prevents an in-
surer from denying benefits on the ground of
MISREPRESENTATION in the application. The clause
applies only when the policy has been in effect
for a specified period of time. This time period,
the contestability period, is usually two or three
years.
Most states maintain statutes that require an
incontestability clause in life and health insur-
ance contracts. The incontestability clause

strikes a balance between providing predictable
coverage and protecting the right of insurers to
select the precise risks they seek to insure.
Most incontestability clauses are limited by
a provision stating that the contestability period
must be completed within the lifetime of the
insured. With this nuance the insurer is able to
contest a claim for benefits after the contest-
ability period has lapsed if the insured dies
before the end of that period. This protects
insurers from providing benefits to someone
who was already so ill at the inception of the
policy that he or she died less than two years
later. It means that the insurer may contest the
flow of insurance benefits to the insured’s heirs.
Another common caveat to incontestability
clauses limits the period of disability. Under this
provision any disability that begins prior to the
expiration of the contestability period will toll
the period. In other words, if an insured
becomes physically disabled before the end of
the contestability period, the clock stops ticking
and the insurer may challenge claims during the
illness and beyond. Without such language, an
insured could always avoid contestability by
waiting until the contestability period has
expired before filing a claim.
Finally, some incontestability clauses con-
tain a
FRAUD exception. Such a clause might

read, “After two years from the date of issue
of this policy, only
FRAUDULENT misstatements
made by the applicant may be used to void the
policy or deny a claim that commences after
the expiration of the two-year period.” Gener-
ally, fraud is a false representation calculated to
deceive another into acting against her or his
legal interest. Statements that are inaccurate but
made without the intent to deceive are not
fraudulent.
The difference between fraud and simple
misstatement can only be found in the facts of a
particular case. In Paul Revere Life Insurance
Co. v. Haas, 137 N.J. 190, 644 A.2d 1098 (1994),
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
398 INCOMPETENT EVIDENCE
the Paul Revere Company brought an action
against Gilbert K. Haas, when it discovered that
Haas had made false statements in his insurance
application. Haas had received a policy on
March 5, 1987, and on December 1, 1990,
started a claim for disability payments related to
a progressive eye disease. The company sought
to rescind the policy or to secure a
DECLARATORY
JUDGMENT
from the court that the policy did not
cover Haas’s disease.
The New Jersey law on incontestability

clauses gave insurers two options: one reserving
contestability in case of fraud, the other
reserving contestability if the insured became
disabled within the contestability period (N.J.
Stat. Ann. § 17B:26-5 [West ]). The Paul Revere
Company chose to bring action under the
disability provision.
The facts indicated that Haas had made false
statements on his policy application. He had
declared that he had not had “any surgical
operation, treatment, special diet, or any illness,
ailment, abnormality, or injury within the
past five years.” Investigations by the insurance
company revealed that Haas had been diag-
nosed and treated for retinitis pigmentosa as
much as four years prior to apply ing for the
policy. According to the New Jersey Supreme
Court, neither incontestability option mandated
in section 17:B-26-5 of the New Jersey Statutes
Annotated could be construed to allow coverage
for disabilities that an insured knew existed but
concealed on the policy application. The court
held that Haas’s policy continued in effect
because the insurer had not proved its case
under the disability provision, but that the
incontestability clause did not prevent the
insurer from contesting Haas’s clai ms under
the fraud provision.
FURTHER READINGS
Postel, Theodore. 2001. “Insurance Incontestability Clause.”

Chicago Daily Law Bulletin 147 (August 28).
Schuman, Gary. 1995. “Health and Life Insurance Applica-
tions: Their Role in the Claims Review Process.”
Defense Counsel Journal 62.
Yu, Kay Kyungsun. 1999. “The Incontestability Clause and
the Battle against Insurance Fraud.” For the Defense 41
(September).
INCORPORATE
To formally create a corporation pursuant to the
requirements prescribed by state statute; to confer
a corporate franchise upon certain individuals.
INCORPORATION BY REFERENCE
The method of making one document of any kind
become a part of another separate document by
alluding to the former in the latter and declaring
that the former shall be taken and considered as a
part of the latter the same as if it were completely
set out therein.
It is commo n drafting practice to incorpo-
rate by reference an existing writing into a
pleading, contract, or other legal document in
order to save space. The incorporating docu-
ment, rather than copying the exact words of the
existing document, describes it, and a photocopy
is often attached to the incorporating document.
This standard practice, however, encounters
difficulty with the requirements prescribed by
law for a will. If the will is a holograph—a
document disposing of property that is written
with one’ s own hand and not witnessed—the

attachment might not be in the handwriting of
the deceased and, therefore, invalid. If the will is
formal, an attachment might violate the require-
ment that the testator (one who makes a will) or
the witnesses subscribe (sign at the end of the
will) the attachment. If subscripti on is not
required, the incorporated document raises the
question whether the testator has declared it to
be a part of the will if it was not present at the
time the will was signed.
The document that is incorporated is usually
not treated as a part of the will itself but as an
external source from which the meaning of
the will can be determined. This maintains the
distinction between actual incorporation, an
integration achieved by extensive copying of a
document into the pages that constitute the will,
and
INCORPORATION BY REFERENCE, which is a
figurative rather than literal integration. Incorpo-
ration by reference is treated as if it were actually
integrated.
Fear of
FRAUDULENT substitutions is probably
the basis for the legal insistence upon compli-
ance with certain conditions in order to
incorporate a document into a will by reference.
Certain requirements exist for incorporation by
reference into a will. The document to be
incorporated must exist at the time the will is

executed. The will must manifest the intention
of the testator to incorporate the provisions of
the incorporated document. The incorporated
document must be sufficiently described to
permit its identification. Some courts emphasize
that the incorporated document comply with
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
INCORPORATION BY REFERENCE 399
the description. Some, but not all, statutes
require that the incorporating document refer
to the incorporated document as being in
existence in addition to the requirement men-
tioned earlier that it actually be in existence.
Most states currently allow incorporation by
reference into wills upon compliance with the
foregoing conditions. In the states that permit
holographic wills, most allow the incorporation
by reference of nonholographic material, even
if actual incorporation would otherwise invali-
date the will because it is not entirely in the
handwriting of the deceased.
INCORPORATION DOCTRINE
A constitutional doctrine whereby selected provi-
sions of the Bill of Rights are made applicable to
the states through the Due Process Clause of the
Fourteenth Amendment.
The doctrine of selective incorporation, or
simply the
INCORPORATION DOCTRINE, makes the
first ten amendments to the Constitution—

known as the Bill of Rights—binding on the
states. Through incorporation, state govern-
ments largely are held to the same standards as
the federal government with regard to many
constitutional rights, including the
FIRST AMEND-
MENT
freedoms of speech, RELIGION, and assem-
bly, and the separation of church and state; the
FOURTH AMENDMENT freedoms from unwarranted
arrest and unreasonable searches and seizures;
the
FIFTH AMENDMENT PRIVILEGE AGAINS T SELF-
INCRIMINATION; and the SIXTH AMENDMENT right
to a speedy, fair, and public trial. Some provisions
of the Bill of Rights—including the requirement
of indictment by a
GRAND JURY (Sixth Amend-
ment) and the right to a jury trial in civil cases
(Seventh Amendment)—have not been applied
to the states through the incorporation doctrine.
Until the early twentieth century, the
BILL OF
RIGHTS
was interpreted as applying only to the
federal government. In the 1833 case Barron
ex rel. Tiernon v. Mayor of Baltimore, 32 U.S.
(7 Pet.) 243, 8 L. Ed. 672, the Supreme Court
expressly limited application of the Bill of Rights
to the federal government. By the mid-nineteenth

century, this view was being challenged. For
example, Republicans who were opposed to
southern state laws that made it a crime to speak
and publish against
SLAVERY alleged that such laws
violated First Amendment rights regarding
FREE-
DOM OF SPEECH
and FREEDOM OF THE PRESS.
For a brief time following the ratification of
the
FOURTEENTH AMENDMENT in 1868, it appeared
that the Supreme Court might use the
PRIVILEGES
AND IMMUNITIES
Clause of the Fourteenth
Amendment to apply the Bill of Rights to the
states. However, in the
SLAUGHTER-HOUSE CASES,
83 U.S. (16 Wall.) 36, 21 L. Ed. 394 (1873), the
first significant Supreme Court ruling on the
Fourteenth Amendment, the Court handed
down an extremely limiting interpretation of
that clause. The Court held that the clause
created a distinction between rights associated
with state citizenship and rights associated with
U.S., or federal, citizenship. It concluded that the
Fourteenth Amendment prohibited states from
passing laws abridging the rights of U.S. citizen-
ship (which, it implied, were few in number) but

had no authority over laws abridging the rights
of state citizenship. The effect of this ruling was
to put much state legislation beyond the review
of the Supreme Court.
Instead of applying the Bill of Rights as a
whole to the states, as it might have done
through the Privileges and Immunities Clause,
the Supreme Court has gradually applied
selected elements of the first ten amendments
to the states through the Due Process Clause of
the Fourteenth Amendment. This process,
known as selective incorporation, began in
earnest in the 1920s. In
GITLOW V. NEW YORK,
268 U.S. 652, 45 S. Ct. 625, 69 L. Ed. 1138
(1925), one of the earliest examples of the use of
the incorporation doctrine, the Court held that
the First Amendment protection of freedom of
speech applied to the states through the Due
Process Clause. By the late 1940s, many civil
freedoms, including freedom of the press (
NEAR
V
. MINNESOTA, 283 U.S. 697, 51 S. Ct. 625, 75 L.
Ed. 1357 [1931]), had been incorporated into
the Fourteenth Amendment, as had many of the
rights that applied to defendants in criminal
cases, including the right to representation by
counsel in capital cases (
POWELL V. ALABAMA, 287

U.S. 45, 53 S. Ct. 55, 77 L. Ed. 158 [1931]). In
1937, the Court dec ided that some of the
privileges and immunities of the Bill of Rights
were so fundamental that states were required
to abide by them through the Due Process
Clause (Palko v. Connecticut, 302 U.S. 319, 58 S.
Ct. 149, 82 L. Ed. 288).
In 1947 the Court rejected an argument that
the Fifth Amendment’s right against
SELF-
INCRIMINATION applied to the states through the
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
400 INCORPORATION DOCTRINE
Fourteenth Amendment (Adamson v. People of
the State of California, 332 U.S. 46, 67 S. Ct.
1672, 91 L. Ed. 2d 1903 [1947]). However, in
one of the most famous dissents in history,
Justice
HUGO L. BLACK argued that the Fourteenth
Amendment incorporated all aspects of the Bill
of Rights and applied them to the states. Justice
FELIX FRANKFURTER, who wrote a concurrence in
Adamson, disagreed forcefully with Black, argu-
ing that some rights guaranteed by the Four-
teenth Amendment may overlap with the
guarantees of the Bill of Rights, but are not
based directly upon such rights. The Court was
hesitant to apply the incorporation doctrine
until 1962, when
FRANKFURTER retired from the

Court. Following his retirement, most provi-
sions of the Bill of Rights were eventually
incorporated to apply to the states.
FURTHER READINGS
Amar, Akhil Reed. 2002. “2000 Daniel J. Meador Lecture:
Hugo Black and the Hall of Fame.” Alabama Law
Review 1221. Available online at e.
edu/documents/pdf/2002Hugo.pdf; website home page:
(accessed August 1, 2009).
Epstein, L., and T. Walker. 2006. Constitutional Law for a
Changing America. Washington, D.C.: CQ Press.
Lindern, Doug. 2009. “The Incorporation Debate.” Explor-
ing Constitutional Conflicts. Available online at http://
www.law.umkc.edu/faculty/projects/ftrials/conlaw/
incorp.htm; website home page: c.
edu (accessed September 5, 2009).
CROSS REFERENCE
Due Process of Law.
INCORPOREAL
Lacking a physical or material nature but relating
to or affecting a body.
Under common law, incorporeal property
were rights that affected a tangible item, such as
a
CHOSE IN ACTION (a right to enforce a debt).
Incorporeal is the opposite of corporeal, a
description of the existence of a tangible item.
INCREMENTAL
Additional or increased growth, bulk, quantity,
number, or value; enlarged.

Incremental cost is additional or increased
cost of an item or service apart from its actual
cost. When applied to the price of gas, the
incremental cost includes the actual cost of gas
to the distributors plus the expenses incurred in
its transportation as well as any taxes imposed
upon it.
INCRIMINATE
To charge with a crime; to expose to an accusation
or a charge of crime; to involve oneself or another
in a criminal prosecution or the danger thereof; as
in the rule that a witness is not bound to give
testimony that would tend to incriminate him
or her.
INCULPATE
To accuse; to involve in blame or guilt.
When an individual who has committed a
crime imputes guilt upon another individual, he
or she is thereby inculpating such individual.
INCUMBENT
An individual who is in current possession of a
particular office and who is legally authorized to
discharge the duties of that office.
INCUR
To become subject to and liable for; to have
liabilities imposed by act or operation of law.
Expenses are incurred, for example, when
the legal obligation to pay them arises. An
individual incurs a liability when a money
judgment is rendered against him or her by a

court.
INDEFEASIBLE
That which cannot be defeated, revoked, or made
void. This term is usually applied to an estate or
right that cannot be defeated.
INDEFINITE TERM
A prison sentence for a specifically designated length
of time up to a certain prescribed maximum, such
as one to ten years or 25 years to life.
INDEMNIFY
To compensate for loss or damage; to provide
security for financial reimbursement to an
individual in case of a specified loss incurred by
the person.
Insurance companies indemnify their pol-
icyholders against damage caused by such things
as fire, theft, and flooding, which are specified
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
INDEMNIFY 401
by the terms of the contract betw een the
company and the insured.
INDEMNITY
Recompense for loss, damage, or injuries; restitu-
tion or reimbursement.
An indemnity contract arises when one
individual takes on the obligation to pay for any
loss or damage that has been or might be incurred
by another individual. The right to indemnity and
the duty to indemnify ordinarily stem from a
contractual agreement, which generally protects

against liability, loss, or damage.
CROSS REFE RENCE
Damages.
INDENTURE
An agreement declaring the benefits and obliga-
tions of two or more parties, often applicable in
the context of bankruptcy and bond trading.
The term indenture primarily describes
secured contracts and has several applications
in U.S. law. At its simplest, an indenture is an
agreement that declares benefits and obligations
between two or more parties. In
BANKRUPTCY
law, for example, it is a MORTGAGE or DEED OF
TRUST
that constitutes a claim against a debtor.
The most common usage of indenture appears
in the bond market. Before a bond is issued,
the issuer executes a legally binding indenture
governing all of the bond’s terms. Finally, the
concept of indenture has an ignominious place in
the history of U.S. labor. Indentured servants of
the seventeenth and eighteenth centuries were
commonly European workers who contracted to
provide labor for a number of years and in return
received passage to the American colonies as well
as room and board.
As an investment product that is used to
raise capital, a bond is simply a written docu-
ment by which a government, corporation, or

individual promises to pay a definite sum of
money on a certain date. The issuer of a bond,
in cooperation with an underwriter (i.e., a
financial organization that sells the bond to the
public), prepares in advance an indenture
outlining the terms of the bond. The issuer
and the underwriter negotiate provisions such
as the interest rate, the maturity date, and any
restrictions on the issuer’s actions. The last
detail is especially important to corporate bonds
because corporations accrue liability upon
becoming bond issuers and therefore seek to
have the fewest possible restrictions placed on
their business behavior by the terms of the
indenture. As a consequence, potential buyers
of corporate bonds should know what the
indenture specifies before buying them.
Federal law governs these indentures. For 50
years, the Trust Indenture Act of 1939 (TIA) (15
U.S.C.A. § 77aaa) was the relevant law. Signifi-
cant changes in financial markets prompted
Congress to amend the TIA through the
SECURITIES Act Amendments of 1990 (Pub. L.
No. 101-550, 1990; 104 Stat. 2713), which
included the Trust Indenture Reform Act (Pub.
L. No. 101-550, 104 Stat. 2713). The reforms
simplified the writing of indentures, recognized
the increasing internationalization of corpora-
tions by creating opportunities for foreign
institutions to serve as trustees, and revised

standards for conflicts of interest. The reforms
also broadened the authority of the
SECURITIES
AND EXCHANGE COMMISSION
.
In early American history, indenture was a
form of labor contract. Beginning during the
colonial period, employers in the largely
agricultural economy faced a labor shortage.
A 1794 indenture
contract from
Philadelphia for the
apprenticeship of a
16-year-old freed
male slave.
HULTON ARCHIVE/GETTY
IMAGES
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
402 INDEMNITY
They addressed it in two ways: by buying slaves
and by hiring indentured servants. The former
were Africans who were brought to the colonies
against their will to serve for life; the latter were
generally Europeans from England and Ger-
many who had entered multiyear employment
contracts. From the late sixteenth century to the
late eighteenth century, approximately half of
the 350,000 European immigrants to the
colonies were indentured servants. During the
seventeenth century, thes e servants outnum-

bered slaves.
An indentured servant agreed to a four- to
seven-year contract, and in return received
passage from Europe and guarantees of work,
food, and lodging. Colonial courts enforced the
contracts of indentured servants, which were
often harsh. Employers were seen as masters, and
the servants had not only to work for them but
also to obey their orders in all matters. For some,
indentured servitude was not a
VOLUNTARY ACT.
Impoverished women and children were pressed
into servitude, as were convicts. Nevertheless, this
servitude was not equivalent to
SLAVERY. Slaves
remained slaves for life, whereas indentured
servants were released at the end of their con-
tracts. Moreover, as parties to a contract, inden-
tured servants had rights that slaves never
enjoyed. The practice of indentured servitude
persisted into the early nineteenth century.
FURTHER READINGS
Ballam, Deborah A. 1996. “Exploding the Original Myth
Regarding Employment-at-Will: The True Origins of
the Doctrine.” Berkeley Journal of Employment and
Labor Law 17, no. 1.
———. 1995. “The Traditional View on the Origins of the
Employment-at-Will Doctrine: Myth or Reality?”
American Business Law Journal 33 (fall).
Riger, Martin. 1990. “The Trust Indenture as Bargained

Contract: The Persistence of Myth.” Journal of
Corporation Law 16 (winter).
INDEPENDENCE
One of the essential attributes of a state under
INTERNATIONAL LAW is external sovereignty—that
is, the right to exercise freely the full range of
power a state possesses under international law.
Recognition of a state as independent necessar-
ily implies that the recognizing states have no
legal authority over the independent state. The
status of a fully independent state should be
contrasted with that of dependent or vassal
states, where a superior state has the legal
authority to impose its will over the subject, or
inferior, state.
INDEPENDENT AUDIT
A systematic review of the accuracy and truthful-
ness of the accounting records of a particular
individual, business, or organization by a person
or firm skilled in the necessary accounting
methods and not related in any way to the person
or firm undergoing the audit.
INDEPENDENT CONTRACTOR
A person who contracts to do work for another
person according to his or her own processes and
methods; the contractor is not subject to another ’s
control except for what is specified in a mutually
binding agreement for a specific job.
An independent contractor contracts with
an employer to do a particular piece of work.

This working relationship is a flexible one that
provides benefits to both the worker and the
employer. However, there are drawbacks to the
relationship as well. The decision to hire or
work as an independent contractor should be
weighed carefully. Properly distinguishing be-
tween employees and independent contractors
has important consequences, and the failure to
maintain the distinction can be costly.
Taxes
The status of independent contractor carries
with it many tax ramifications. For example, an
employee shares the costs of
SOCIAL SECURITY and
MEDICARE taxes with his or her employer;
whereas an independent contractor is responsi-
ble for the entire amounts. Yet independent
contractors generally qualify for more business
deductions on their federal income taxes than
do employees. Also, independent contractors
must pay estimated taxes each quarter, whereas
employees generally have taxes withheld from
their paychecks by their employer.
One important disadvantage of working as
an independent contractor is that standard
employment benefits—such as health, life,
dental, and disability insurance; funded retire-
ment plans ; paid vacation time; and paid
maternity or paternity leave—are not available.
Independent contractors may fund their own

benefits, but not on a tax-free basis—whereas
many benefits provided by employers to
employees are, by law, tax free.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
INDEPENDENT CONTRACTOR 403
Labor Relations
Congress and the states have enacted numerous
laws geared toward protecting employees.
The National Labor Relations Act (29 U.S.C.A.
§ 152(3)) protects employees and union mem-
bers from unfair bargaining practices; Title VII of
the
CIVIL RIGHTS Act of 1964 (42 U.S.C.A. § 2000
et seq.) protects employees from discrimination
on the basis of race, sex,
RELIGION, and national
origin; the
AGE DISCRIMINATION in Employment
Act (20 U.S.C.A. § 623) protects employees from
age discrimination; the
FAIR LABOR STANDARDS ACT
(29 U.S.C.A. § 203) establishes MINIMUM WAGE
and overtime standards; the EMPLOYEE RETIREMENT
INCOME SECURITY ACT
of 1974 (29 U.S.C.A. § 1002)
ensures the security of employee retirement
funds; and the Occupational Safety and Health
Act (29 U.S.C.A. § 652) protects employees from
environmental work hazards. Most states also
have unemployment and workers’ compensation

laws, which obligate employers to pay, directly or
indirectly, for medical treatment or lost wages, or
both, for employees who are injured while at
work or who lose their job. None of these laws
protect independent contractors. And because
compliance often comes at great expense,
employers can significantly reduce their liability
and increase their profit margin by hiring
independent contractors rather than employees.
Economics and Social Policy
Although not protected by law to the extent of
an employee, an indepen dent contractor has far
greater control over elements such as work
hours and work methods. Unlike most employ-
ees, an independent contractor may opt to work
at night or on weekends, leaving weekdays free.
An independent contractor may choose to wear
blue jeans or a business suit, take one week of
vacation or 30 weeks, or interrupt work to
attend a child’s school play or to go to the
beach. Moreover, although the other contract-
ing part y retains control over the finished work
product, an independent contractor has exclu-
sive control over the actual work process.
Decisions such as whether to work for one
person or several, whether to work a little or a
lot, whether to accept or reject an undesirable
work project, and how much money to charge
are made by the independent contractor.
The other party, in turn, enjoys mainly

profit-related advantages by hiring an indepen-
dent contractor instead of an employee. For one
thing, an employer need not provide an
independent contractor with vacation time ,
pension, insurance, or other costly benefits.
Management costs that ordinarily go toward
training and overseeing large numbers of
employees decrease when independent contrac-
tors do the work. Some say that because
independent contractors benefit directly from
their hard work, the quality of their work may be
higher than it is for full-time employees who
might be less motivated. And by hiring indepen-
dent contractors, an employer enjoys the greater
ease and flexibility to expand and contract the
workforce as demand rises and falls.
Tort Liability
The common-law doctrine of RESPONDEAT SUPER-
IOR
holds an employer liable for the negligent
acts of its employee. Generally, under
COMMON
LAW
, the hiring party is not responsible for the
NEGLIGENCE of an independent contractor. The
Restatement (Second) of Torts identifies a few
exceptions to this rule. The hiring party may be
liable when, owing to its failure to exercise
reasonable care to retain a competent and careful
contractor, a

THIRD PARTY is physically harmed.
Also, when an independent contractor acts
pursuant to orders or directions negligently given
by the hiring party, the latter may be held liable.
Notwithstanding the exceptions, the hiring
party’s risk of liability is greatly reduced by hiring
independent contractors rather than employees.
Defining the Independent Contractor
No consistent, uniform definition distinguishes
an employee from an independent contractor.
Some statutes contain their own definitions.
The U.S. Supreme Court has held that when a
statute contains the term employee but fails to
define it adequately, there is a presumption that
traditional agency-law criteria for identifying
master-servant relationships apply (National
Mutual Insurance Co. v. Darden, 503 U.S. 318,
112 S. Ct. 1344, 111 L. Ed. 2d 581 [1992]).
One comprehensive test that takes into
account agency-law criteria and numerous
other factors courts have created to define
independent contractor status was developed by
the
INTERNAL REVENUE SERVICE (IRS). Known
collectively as the 20-factor test, the enumerated
criteria generally fall within three categories:
control (whether the employer or the worker
has control over the work performed), organi-
zation (whether the worker is integrated into
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION

404 INDEPENDENT CONTRACTOR
the business), and economic realities (whether
the worker directly benefits from his or her
labor). The 20 factors serve only as a guideline.
Each factor’s degree of importance varies
depending on the occupation and the facts
involved in a particular case.
Twenty-factor Test
1. A worker who is required to comply with
instructions about when, where, and how he
or she must work is usually an employee.
2. If an employer trains aworker—requires
an experienced employee to work with the
worker, educates the worker through
correspondence, requires the worker to
attend meetings, or uses other methods—
this normally indicates that the worker is
an employee.
3. If a worker’s services are integrated into
business operations, this tends to show that
the worker is subject to direction and control
and is thus an employee. This is the case
particularly when a business’s success or
continuation depends to a large extent on
the performance of certain services.
4. If a worker’s services must be rendered
personally, there is a presumption that the
employer is interested in the methods by
which the servic es are accomplished as
well as in the result, making the worker an

employee.
5. If an employer hires, supervises, and pays
assistants for a worker, this indicates control
over the worker on the job, making the
worker an employee.
6. A continuing relationship between a worker
and an employer, even at irregular inter-
vals, tends to show an employer-employee
relationship.
7. An employer who sets specific hours of
work for a worker exhibits control over the
worker, indicating that the worker is an
employee.
8. If a worker is working substantially full-
time for an employer, the worker is
presumably not free to do work for other
employers and is therefore an employee.
9. Work performed on an employer’spremises
suggests the employer’s co ntrol ov er a
worker, making the worker an employee.
This is especially true when work could b e
done elsewhere. However, the mere fact
that work is done off the employer’s
premises does not nece ssarily make the
worker an independent contractor.
10. If a worker is required to perform services
in an orderorsequencesetbyanemployer,
the employer has control over the worker
that demonstrates an employer-employee
relationship.

11. A worker who is required to submit regular
oral or written reports to an employer is likely
an employee.
12. Payment by the hour, week, or month te nds
to indicate that a worker is an employee;
payment made by the job or on a straight
commission points to an independent
contractor.
13. A worker is ordinarily an employee if an
employer pays for the worker’s business or
travel expen ses .
14. An employer who furnishes a worker with
significant tools, materials, or other equip-
ment tends to show that the worker is an
employee.
15. A worker who significantly invests in
facilities used to perform services and
not typically maintained by employees
(such as office space) is generally an
independent contractor.
16. A worker who can realize a profit or loss
resulting from his or her services is
generally an independent contractor.
17. A worker who performs for more than one
firm at a time is generally an indepen dent
contractor.
18. If a worker makes his or her services
available to the general public on a regular
and consistent basis, that worker is
generally an independent contractor.

19. A n employer’s right to discha rge aworker
tends to show that the worker is an
employee. An employee must obey an
employer’s instructions in order to stay
employed; an independent contractor can
be fired only if the work result fails to
meet the agreed-upon specifications.
20. If a worker has the right to terminate his or
her relationship with an employer at any
time without incurring liability, such as
breach of contract, that worker is like ly an
employee.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
INDEPENDENT CONTRACTOR 405
FURTHER READINGS
Fishman, Stephen. 2008. Working for Yourself: Law and
Taxes for Independent Contractors, Freelancers, and
Consultants. 4th ed. Berkeley, CA: Nolo.
Fishman, Stephen, and Amy Delpo. 2003. Hiring Indepen-
dent Contractors: The Employers’ Legal Guide. 3d ed.
Berkeley, CA: Nolo.
Nunnallee, Walter H. 1992. “Why Congress Needs to Fix the
Employee/Independent Contractor Tax Rules.” North
Carolina Central Law Journal 20.
Pacynski, Rick A. 1993. “Legal Challenges in Using Indepen-
dent Contractors.” Michigan Bar Journal 72 (July).
Payton, Janet G. 2001. “Checklist for Determining Indepen-
dent Contractor Status.” Corporate Counsel’s Quarterly
17 (October).
Ringquist, Neil A. 1997. Independent Contractor or Employ-

ee?: A Practitioner’s Guide. Chicago: CCH.
Sheppard, Lee A. 1999. “Resolving the Independent
Contractor Dispute for the Future.” Tax Notes 83
(May).
Treasury Department. Internal Revenue Service. 1987.
Revenue Ruling 87–41: Employment Status Under Section
530(D) of the Revenue Act of 1978. Washington, D.C.:
U.S. Government Printing Office. Available online at
/>revrul87-41.htm; website home page: http://www.
medlawplus.com (accessed August 1, 2009).
Wood, Robert W. 2005. Legal Guide to Independent
Contractor Status. Frederick, MD: Aspen Press.
CROSS REFE RENCES
Employment Law; Labor Law; Master and Servant.
INDEPENDENT COUNSEL
An attorney appointed by the federal government
to investigate and prosecute federal government
officials.
Before 1988, independent counsel were
referred to as special prosecutors. In 1988
Congress amended the
ETHICS IN GOVERNMENT ACT
OF
1978 (Ethics Act) (92 Stat. 1824 [2 U.S.C.A.
§§ 701 et seq.]) to change the title to
independent counsel. This change was made
because lawmakers considered the term special
prosecutor to be too inflammatory.
Independent counsel are attorneys who
investigate and prosecute criminal activity in

government. They hold people who make and
implement laws accountable for their own
criminal activity.
The need for independent counsel arises
from the
CONFLICT OF INTEREST posed by having
the established criminal justice system investi-
gate government misconduct. Prosecutors and
law enforcement agencies work under the
authority of government leaders. When govern-
ment leaders are accused of wrongdoing, these
entities face conflicting duties: the duty to
uphold the laws on the one hand, versus the
duty of loyalty to superiors on the other.
Independent counsels do not answer to the
government officials they are assigned to
investigate, and therefore they avoid much of
this conflict of interest. One potential element
for bias remains: the political affiliations of
the accused government official and the inde-
pendent counsel. The people rely on indepen-
dent counsel’s duty as members of the bar
to uphold the laws and the U.S.
CONSTITUTION,
to overcome any similarities or differences in
political beliefs. Independent counsel who
appear to be motivated by political or other bias
may be dismissed.
President
ULYSSES S. GRANT was the first to

appoint independent counsel to investigate high-
level federal government officials. In 1875,
Grant’s personal secretary, Orville E. Babcock,
was indicted in federal district court on charges of
accepting bribes. Babcock had allegedly arranged
favorable tax treatment for a group of moon-
shiners who were known as the Whiskey Ring.
Grant removed the federal district attorney and
replaced him with an independent counsel, who
finished the investigation and the trial.
In the early 1920s, another bribery scandal,
known as Teapot Dome, led to the appointment
of an independent counsel. President
WARREN G.
HARDING appointed independent counsel to
investigate the sale of oil-rich federal lands.
The independent counsel’s investigation led to
the prosecution of Harding’ s secretary of the
interior, Albert B. Fall.
In its later days, President Harry S. Truman’s
administration labored under allegations of
corruption. Specifically, officials in the
INTERNAL
REVENUE SERVICE
and the Tax Division of the
JUSTICE DEPARTMENT were accused of giving
favorable treatment to tax evaders. Attorney
General J. Howard McGrath appointed a special
assistant attorney to investigate. When the special
prosecutor sought to investigate McGrath,

McGrath fired him. Truman then fired McGrath
and refused to pursue the matter.
The
WATERGATE scandals of the 1970s gave
Congress the incentive to create the first statutory
framework for investigating government officials.
In 1973, newspaper reports concerning a burglary
at the Democratic National Committee head-
quarters in the Watergate Hotel in Washington,
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
406 INDEPENDENT COUNSEL
D.C., implicated officials in the administration of
President
RICHARD M. NIXON.AttorneyGeneral
ELLIOT L. RICHARDSON appointed ARCHIBALD COX,a
Harvard law professor, as independent counsel to
investigate the situation.
Cox endeavored to uncover the facts
surrounding Watergate. As it became apparent
that White House officials were involved in the
episode, Cox was forced to investigate the
president himself. When Cox asked Nixon for
White House tape recordings, Nixon sought to
have Cox fired. One weekend in October 1973,
in a turn of events later known as the Saturday
Night Massacre, Richardson and Deputy Attor-
ney General William D. Ruckelshaus resigned
rather than carry out Nixon’s order to fire Cox.
That same night,
SOLICITOR GENERAL ROBERT H.

BORK, who had just become acting head of the
DEPARTMENT OF JUSTICE, carried out Nixon’s
request and fired Cox.
Nixon then appointed
LEON JAWORSKI to be
the second independent counsel to investigate
Watergate. Like Cox, Jaworski sought Nixon’s
White House tapes. After a court battle that
reached the U.S. Supreme Court in United
States v. Nixon, 418 U.S. 683, 94 S. Ct. 3090, 41
L. Ed. 2d 1039 (1974), Jaworski successfully
subpoenaed the tapes. Nixo n resigned the office
of president shortly thereafter.
After the Saturday Night Massacre and the
Watergate matter, it became obvious that
independent counsel were necessary to check
government misconduct. In 1978 Congress
passed the Ethics Act to establish, on the federal
level, a statutory scheme for policing the
EXECUTIVE BRANCH.
Ethics in Government Act
Under the Ethics Act, the process of appointing
independent counsel began when the attorney
general received information on criminal activ-
ity. The attorney general could investigate all
violations of
CRIMINAL LAW other than minor
misdemeanors and minor violations. This per-
mission included special ethics laws that applied
to executive branch officials, such as laws that

make it illegal for an executive branch official to
receive money from a person if the official has
arranged for that person to be employed by the
federal government.
There had to be sufficient credible informa-
tion of criminal activity to constitute grounds
for an investigation, and the information had to
pertain to the president, the vice president, a
member of the president’s
CABINET, a high-level
executive officer, a high-level Justice Depart-
ment official, the director or deputy director of
the
CENTRAL INTELLIGENCE AGENCY, the commis-
sioner of the Internal Revenue Service, any
person with a personal or financial relationship
with the attorney general or any other officer in
the Department of Justice, or the president’s
campaign chair or treasurer.
Once the attorney general received credible
inculpatory information, the attorney general
had to decide within 30 days whether to
investigate the matter. If the attorney general
determined that the matter warranted an
investigation, he had to begin an investigation.
The attorney general could not conduct this
initial investigation for more than 150 days. At
the close of the investigation, the attorney
general submitted a report to the Independent
Counsel Division of the U.S. Court of Appeals for

the District of Columbia Circuit. The members of
this three-judge panel were appointed by the chief
justice of the U.S. Supreme Court.
In the report, the atto rney general requested
or declined the appointment of independent
counsel on the matter. A court could not review
this decision. If the attorney general requested
independent counsel, the panel appointed one
and defined the scope of the investigation.
Generally, the panel limited the counsel’sinvesti-
gation to certain persons or certain issues.
The appointment of independent counsel
was unusual because the Department of Justice
already is required to police the executive
branch. In theory, the attorney general is an
independent official. In practice, however, he
usually is a political ally of the president. Like
other executive branch of ficials, the attorney
general is appointed by the president and
reports to the president. Because the attorney
Patrick Fitzgerald has
held the position of
special counsel since
2003. The U.S.
Department of Justice
Office of Special
Counsel replaced the
Office of the
Independent Counsel
in 1999.

AP IMAGES
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3
RD E DITION
INDEPENDENT COUNSEL 407